Chicago Vehicle Use Tax (sales, leasing, hotel)

[dmbatman]

Recently, when looking to lease a new car, I came across an outrageous piece of information. If you live in the City of Chicago, not only do you pay the 10.25% sales tax on the full price of the car (not just the price of the lease) but you are also required to pay an 8% Usage Tax on the monthly payment.


**The numbers below are for example purposes and do not reflect actual payment prices, they are simply used to illustrate the amount of taxes you would pay.**

If the MSRP of your car is $20,000 and you have a 36 month lease with payments of $200/month you would pay $7,200 in the life of the lease. However, due to the Illinois sales tax you would pay an additional $2,050 on the full price of the car ($20,000x 10.25%= $2050). Finally, you would pay an extra $576 to the city over the life of the lease.

The problem I am having is two-fold. 1) If the 10.25% sales tax that is seen in chicago is made up of 3 components (illinois, cook county, and chicago sales tax), then wouldnt the 8% usage tax comprise double taxation? and 2) What could the possible justification be for levying such a hefty tax on vehicle lessees when neighboring cities and towns do not have such a practice?

If anyone is as outraged as I am about this seemingly exorbitant and unfair tax please respond below. Also write to your alderman. Thank you

[Muppet123]

I just register my car at my parents place in Wisconsin... sorta my own way of protesting through apathy.

[dmbatman]

You should instead write to your alderman. If enough people do it, I'm sure we can make change. Apathy is not the way to get what you want from your government, action is.

[americanobserver]

I couldn't agree more! We just moved to Chicago from Denver. I leased my car there over a year ago and thought that I would be tax exempt (because if I owned the car for more than three months out of state, I would be exempt. Apparently, Illinois has something against leasing!)...It was not only the one-two punch of the outrageous "upfront" tax on the full PURCHASE price of the car (I don't own it, so why should I have to pay a tax on the purchase price), but also the fact that there is no information about it listed when you look up requirements for obtaining IL license plates online. The IDOT personnel were extremely rude and unhelpful. To top it all off, I also found out that if I want to purchase the car at the end of my lease, then IL will slap ANOTHER tax on it based on the residual value of the car at the time of purchase. I just want to know how this is legal. What can we do about it? Who introduced this into law? It's completely unjustified and unfair. I have paid $840 in this upfront tax and am still paying a monthly city tax on the car in addition to my lease price. I doubt we will remain in Illinois after this experience. I don't know of any other states that punish lessees with such unfair tax practices.

[ofcjim40]

Welcome to the land of those that work hard for their money to have it taken to pay for those that don't. I had no idea about the 8%, that is outrageous.

[Chicago76]

Originally Posted by dmbatman

The problem I am having is two-fold. 1) If the 10.25% sales tax that is seen in chicago is made up of 3 components (illinois, cook county, and chicago sales tax), then wouldnt the 8% usage tax comprise double taxation? and 2) What could the possible justification be for levying such a hefty tax on vehicle lessees when neighboring cities and towns do not have such a practice?

If anyone is as outraged as I am about this seemingly exorbitant and unfair tax please respond below. Also write to your alderman. Thank you

1) Nope. One charge is on the purchase of a vehicle (sales tax, which is essentially a use tax) and the other is isn't really a use tax, but rather a transaction tax on lease payments. Compare this to the sale of a home. Transaction taxes are due up front and property tax (a use tax) is payable down the road. The use vs. transaction timing is flipped, but they're essentially the same thing.

2) There are a couple of reasons why this is done. The first is to place more of the burden for road wear and tear on those who most frequently lease: short term residents, taxi companies, and corporations rather than on long-term private residents, who tend to buy. This is similar to hotel occupancy taxes, airport taxes, and F&B taxes all over the country. The other is to avoid some forms of tax gamesmanship with sale leaseback schemes. Taxis companies can play this game a couple of different ways:

Two brothers running their own companies buy new cabs. They drive them off the lot and take the immediate price reduction hit. They then lease their cabs to one another at the reduced price at 0% interest (thus paying only the depreciation of the vehicle). This would be a capital lease. In this case, the tax benefit on the "loss" generated by driving the vehicle off the lot is greater than the private vehicle transaction tax due when leasing one another's vehicles. The lease transaction erases this tax advantage, which promotes vehicle ownership. A couple of benefits to this: fewer fly by night cab operations and less litgation headache if someone gets into an accident with lawsuits.

Companies could do this too w/ employee car leases at nice terms, which would drive people away from transit.

That's just my basic knowledge of how the tax game plays out. Someone else on here who is an accountant probably understands this much better than I do.

The city probably thinks this is worth the effort given the number of cabs and companies vs. cars privately owned by city residents. If the ratio was much lower (as it is in the 'burbs), this probably wouldn't be implemented.

[wwj]

Take a look at this site - it may help you decipher some of these vehicle sales tax questions.

http://salestaxoncars.com/

[Plzeň]

To be honest, I've never understood why people lease cars, anyway. There seem to be enough other reasons that it's financially better to buy, use tax or not.

[Ace Rothstein]

Originally Posted by Plzeň

To be honest, I've never understood why people lease cars, anyway. There seem to be enough other reasons that it's financially better to buy, use tax or not.

I think it is for the type of person that always has to have the newest and best things. If I was uber-wealthy I'd probably lease a car but it has always seemed like a massive waste of money to me.

[jsk1983]

Originally Posted by Ace Rothstein

I think it is for the type of person that always has to have the newest and best things. If I was uber-wealthy I'd probably lease a car but it has always seemed like a massive waste of money to me.

But couldn't you just trade in a car every few years?